The organizational structure of Qard-al-hassan Funds in Iran By: Abbas Arabmazar (Associate Prof. of Economics, Shahid Beheshti University & Director of R&D, BKI) Workshop – SESRTCIC Turkey – Istanbul 9-10 July 2007
بسم الله الرحمن الرحيم • He who will give Allah Qard-al hasan, which Allah will double into his credit and multiply many times. [Al-Baqarah (2): 245]
2- Definition of Qard-al-hassan • Qard-al-hassan is a loan which is returned at the end of the agreed period without any interest or share in the profit or loss of the borrower. [Umer chapra, 1995]
3- Main Objectives of Qard-al-hassan • Help the needy fellow Moslems, neighbours or families. • Establish better relationship among poor and the rich. • Mobilize wealth among all people in the society. • Facilitate the poor to create new jobs and business ventures by using their merits, skills and expertise.
Main Objectives of Qard-al-hassan (Cont’d) 5. Reduce unemployment and poverty from society. 6. reduce social and economical inequality. 7. Perform a good deed that is encouraged and appreciated by the Almighty Allah and His messenger and gain a great reward in the Hereafter .
4- Characteristics of Qard-al-hassan • Having attraction for participants, because of its compliant with people religious beliefs. • no surplus or interest on loan is involved. • Can be used for financing all sorts of consumption, production, and service activities. • The spiritual incentives of lenders just for good deed and receiving awards in the hereafter. • Can be organized and implemented at personal or institutional level.
5- Qard-Al-hassan Funds Characteristics: • Micro finance institutions. • Shariah-Compliant (or approved) • Interest free (savings and loans) • Non-Gov Organizations (NGO’s) • Financially self-sufficient (No-subsidy) • Efficient operation (very low operational cost) • Can be organized in rural or urban areas • Can be operated in any scale (amount)
Qard-Al-hassan Funds (Cont’d) Objectives: • Reviving and promoting the pure and original Islamic traditions. • Increasing the sense of cooperation among the society. • Helping the poor and needy people to improve their living conditions. • Increasing the access of poor to financial services (Savings and loans).
6- Qard-al-hassan Funds in IRAN • Founded informally for many years. • The first Fund was formally established in 1969. • Voluntary established among families in districts, towns and employees of an organization. • Encountered with a remarkable positive growth after Islamic revolution in 1979. • Most of them are not registered organizations (informal).
7- Different types of Qard-al hassan Funds 1- Family Qard-al hassan Funds 2- local Qard-al hassan Funds 3- Union Qard-al hassan Funds 4- formal registered) Qard-al hassan Funds
8- Family Qard-al hassan Funds Established among members of extended family for the purpose of: • Meeting the financial needs of the members. • Increasing the sense of individual responsibilities. • Improving the relationship between the family members.
Family Qard-al hassan Funds (Cont’d) Procedures: • Each family consider a member of fund • Meetings are in family gathering at end of each month • Each family makes equal saving deposit to fund • Total collected deposit in each meeting will be given as loan to randomly selected member. • Until all members will not receive the loan, the loan can not be disbursed twice to one member. • An old trusty member of the family will undertake all the affairs relating to the fund. • Installment of borrower of loan is its monthly deposit.
Family Qard-al hassan Funds (Cont’d) Characteristics: • Very simple structure • No registration is necessary • Interest-free with no service charge • No need to extensive accounting • Disbursing loans to non members is not common. • There is no collateral, because of the trust between members. • The loans are mostly micro and spend on durable consumption goods, purchasing work tools, wedding costs, etc.
9- Local Qard-al hassan Funds Procedures: • Established by the donors who are the board of trustees • board of directors will select by board of trustees. • Run with the membership and cooperation of the residents in local residential area to finance the necessary needs. • Resources will come from deposits of board of trustee and monthly deposit of members. • Any person in the area can open a saving account voluntary and become a member.
Local Qard-al hassan Funds (Cont’d) Procedures: • The savers can ask for refunding (a part or total) of their deposits anytime they wish. • The loans will be disbursed to the members of the fund based on the priority in needs and availability of resources. • The period of repayment is from 10-20 month usually on equal monthly. • The Fund ask for a guarantee from a trusty person in the area. • There is a service charge on loans around (1-3%) of loan amount.
Local Qard-al hassan Funds (Cont’d) Characteristics: • The monthly meetings of board of directors held in mosque or the house of a member of the board. • Usually have no official license and not registered. • The people can participate voluntarily in fund services without any compensation. • The operational costs are low due to their simple structure.
Local Qard-al hassan Funds (Cont’d) • Their working hours are usually longer than Gov offices. • There is no compensation for the manager or board members. • There is no accurate and documented report of these funds, as a result of no registration.
Local Qard-al hassan Funds (Cont’d) Loans are usually paid for the purpose of : • Wedding cost • Repayment of the outstanding debts • The house rental cost • House repairing cost • Medical expenses • Tuition fees of the non-Gov universities • Purchasing the consumption durable goods • Purchasing the working tools
10- Union Qard-al hassan Funds Procedures: • Founded by the civil servants, universities staff and workers of a firm, craftsmen union, to meet the needs of members. • Usually Operate in a pre-determined location inside the organization. • Main resources are composed of: - Monthly member deposits - Received service charges - Financial aids and transfer payments from individuals or organizations.
Union Qard-al hassan Funds (Cont’d) • Administrated by board of directors elected by members, The board of directors will decide on received loan application. • There is a service charge is around 1-4 percent which is subtracted from amount of loan. • The monthly repayment period usually 20-25 month. • The installments should not exceed from a portion of individual salary and It determines the loan ceiling. • The collateral is not usually claimed, because the installments will be deducted from the monthly salary automatically.
Union Qard-al hassan Funds (Cont’d) Characteristics: • The majority of these funds are not registered. • There is no unique organizational structure for all these funds. • Administers by elective board of directors. • There is usually no compensation for services of board members. • There is no profit for saving deposits. • The members can claim any portion of their deposit.
11- Formal Qard-al hassan Funds Procedures: • Establish by the group of founders which are board of trustee with the incentive of improving the quality of life for poor and promoting the Qard-al hassan culture. • The administration of fund is done by board of directors elected by board of trustee. • Any person by opening a saving accounts can be a member.
Formal Qard-al hassan Funds (Cont’d) • Main resources provided by the board of trustees and deposit of members. • Depositors can withdraw any portion of their deposits whenever that they wish. • There is no profit or extra payment for savings but the spiritual benefits. • The loan applications will be considered and approved by board of directors.
Formal Qard-al hassan Funds (Cont’d) • Repayment period for loans is between 10-20 month. • The loan ceiling depends on the fund financial status and the applicant’s needs. • The guarantee of an accredited person is essential. • A 1-4 percent service charge is imposed to the loan and will deducted from the principle at the beginning.
Formal Qard-al hassan Funds (Cont’d) Characteristics: • Registered in official entities and are obliged to respect the trade law. • Have lower operational cost comparing to similar entities e.g. Banks. • Their operation hour is longer than banking system. • The operational costs and credit risks will cover from the service charge. • All the individuals can block (a part or total of) his account balance after opening it, for disbursing loan to the persons who were introduced by him, without any collateral and queuing. • The number of these fund is estimated up to 5000
Formal Qard-al hassan Funds (Cont’d) The funds provide loan for the following purposes: • Wedding cost • House repairs • Residential rents and mortgages • Medical expenses • Business working capital • Education fees • Agricultural activities • Buying working tools and equipments
12- Performance of Qard-al hassan Funds Qrad-al hassan saving deposits in Funds comparing with similar accounts in banking system (Billion IRR)